Preparing clients forpost-election investing

Addressing common questions in an unprecedented election year

Though the election season has drawn to a close, investor concerns haven’t vanished. These shareable resources look to equip financial professionals with the tools they need to tackle investors’ leading questions.

Could market volatility linger after Election Day?

Worries around volatility are on the minds of many investors. 76% respondents to BlackRock’s latest Investor Pulse survey believe that today’s messy political landscape is driving financial market volatility. Worries extend beyond the Presidential election; 71% of respondents believe that volatility will continue to drift higher even after November 8th.

These worries aren’t misplaced. As the chart below shows, equity volatility has historically risen in the days leading up to the election, and has often continued to rise in the first 60 days of the Presidential term.

Market volatility has historically drifted higher as the election draws nearEquity volatility around U.S. elections, 1992-2016

While markets typically respond more significantly to fundamental factors outside the realm of politics – chiefly economics and earnings – we believe this election year may see a similar trend. Volatility is likely to rise, particularly given its abnormally low starting point.

So what do I do with my money?

Volatility can rattle even the most confident investors. But while ups and downs are a fixture of investing in any environment, their severity can potentially be blunted. High-quality bonds, gold and – for the many investors who require stock market exposure to generate investment growth – minimum volatility equity strategies may help mute the impact of market swings.

Which party is better for the stock market?

Many myths surround the connection between the party in the White House and the performance of equity markets. One commonly held one: Democratic administrations tend to see stronger equity performance. Respondents to our latest Investor Pulse survey appear to share this view. While 37% believe that a Clinton presidency will lead to stronger equity performance, only 28% of respondents believe that a Trump presidency will see stronger equity returns.

The chart below shows average annual stock market returns under Democratic and Republican administrations, findings that appear to suggest that there is some wisdom in investors’ beliefs. There is more to the story, though.

Since 1900, Democratic administrations have coincided with slightly higher returns on U.S. stocks. However, this difference is dwarfed by the normal variation in annual equity market returns. This suggests that chance alone, rather than shrewd policy choices or financial market wizardry, is the likely explanation for this discrepancy.

So what do I do with my money?

Government policy can no doubt influence the performance of the economy and financial markets. However, the impacts are often nuanced, playing out at the sector or individual stock level. Investors may want to think twice about making big shifts in their portfolio in anticipation or as a result of a specific election outcome.

Should I move to cash amid market uncertainty?

This election cycle has left investors on edge. 75% of respondents to BlackRock’s latest Investor Pulse survey believe the 2016 election will be more consequential to their personal finances than the 2008 election – one which took place in the midst of the largest market crisis since the Great Depression. Amid this uncertainty, twice the number of respondents are increasing their cash position compared with those reducing it. For anxious investors, it is important to remember that financial markets have weathered many storms.

The stock market has risen through many administrations and crises alikeStandard & Poor’s composite stock price index over time, 1900–2015

Neither the Great Depression, Great Recession, two world wars, nor political crises of all types have long detained the stock market’s upward climb. Over time, one truism has held constant: markets are resilient. In fact, fleeing to cash can leave investors missing out on some of the best performing days—something that can carry significant consequences.

So what do I do with my money?

For investors, seeking to anticipate or time political developments within their portfolio is a fool’s errand. As this election cycle has poignantly illustrated, few things are less predictable than politics. Patience, diversification and long-term perspective remain the most potent tools in an investor’s arsenal. Further, investors may want to consider alternatives to cash that can offer a similar reduction in portfolio volatility, while providing greater income potential.

Is my wealth under threat?

Wealth inequality has been a key theme this election cycle, one influencing the tone and platforms of both major party candidates. The Democratic Party, in particular, has put forth proposals that, if enacted in full, would increase tax liabilities for high earners and some investors. In fact, among self-identified Republicans surveyed in our latest Investor Pulse findings, 60% believe their financial situation will be directly threatened by a Clinton presidency. Nearly half of Democrats hold the same fears surrounding a Trump presidency.

It is important for investors to recognize that political compromise will likely temper the most radical proposals of either party.

While Democrats may take the Senate, control of the House of Representatives looks less likely to flip

As the chart above shows, Republican look poised to maintain a sizeable lead in the House of Representatives. Even with a Democratic sweep of the House, Senate and White House, procedural roadblocks still restrain major policy excesses. Corporate tax reform seems a more likely area for bipartisan compromise, leaving potentially more painful decisions around individual tax reform off the table.

So what do I do with my money?

Highly tax-conscious investors concerned about a potentially rising tax bill may look to consider more tax efficient ways to gain income or equity market exposure.

Exchange Traded Funds: In a low return environment, every dollar counts. iShares ETFs have a 15-year track record of providing tax-efficient ETFs. Last year, 93% of our funds did not pay capital gains distributions.

Points for professionals

Help clients maintain a long-term perspective as the election draws near.

Avoiding big shifts in portfolios is prudent, but there are tools to tap that may help clients more comfortably navigate volatile times.

Consider tax-efficient ways to generate growth and income within portfolios.

The funds mentioned are just some examples of BlackRock funds to consider. There may be other funds that are more appropriate for your situation. Please discuss with your advisor.

Carefully consider the Funds' investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds' prospectuses or, if available, the summary prospectuses which may be obtained visiting the iShares ETF prospectus pages. Read the prospectus carefully before investing. Investing involves risk, including possible loss of principal.

The Funds are distributed by BlackRock Investments, LLC (together with its affiliates, “BlackRock”).

The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective. The examples presented do not take into consideration commissions, tax implications or other transactions costs, which may significantly affect the economic consequences of a given strategy or investment decision. Diversification and asset allocation may not protect against market risk. The iShares Minimum Volatility ETFs may experience more than minimum volatility as there is no guarantee that the underlying index's strategy of seeking to lower volatility will be successful. Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments.

Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments. There may be less information on the financial condition of municipal issuers than for public corporations.

Transactions in shares of ETFs will result in brokerage commissions and will generate tax consequences. All regulated investment companies are obliged to distribute portfolio gains to shareholders. There is no guarantee that capital gains distributions will not be paid in the future.

The information provided is not intended to be tax advice. Investors should be urged to consult their tax professionals or financial advisors for more information regarding their specific tax situations.

This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any security in particular.

In Latin America and Iberia: this material is for educational purposes only and does not constitute investment advice nor an offer or solicitation to sell or a solicitation of an offer to buy any shares of any Fund (nor shall any such shares be offered or sold to any person) in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities law of that jurisdiction. If any funds are mentioned or inferred to in this material, it is possible that some or all of the funds have not been registered with the securities regulator of Brazil, Chile, Colombia, Mexico, Panama, Peru, Portugal, Spain, Uruguay or any other securities regulator in any Latin American country and thus might not be publicly offered within any such country. The securities regulators of such countries have not confirmed the accuracy of any information contained herein